Google Pixel is earning well, but the premium smartphone segment is trickier than it seems

If there was one smartphone that garnered the same amount of curiosity, as the iPhone 7/7 Plus and delivered on its promise, then it has to be the Google Pixel / Pixel XL. These ‘Made by Google’ phones have certainly broken the duopoly that was held by Samsung and Apple at the high end tier. I was certainly impressed with the overall performance and specially the camera that was onboard the Pixel XL , but somehow couldn’t find a valid reason to justify the Rs 67,000 price tag for the 32GB Pixel XL variant .

Pixel performance in India: So far, so good

It seems like Google has got off to a fine start in India, already capturing a 10 percent market share in the premium segment. Google managed to sell around 33,000 units of Pixel till the end of October, putting it behind Apple (which saw a 66 percent growth) and Samsung (which saw a 23 percent drop).

According to a latest report by Morgan Stanley , the Pixel will add around $4 billion to Google’s revenue in 2017. Morgan Stanley report projects about 5-6 million Pixels to be sold next year. In fact, it predicts the sale of around 3 million Pixels in the last three months of this year. In terms of profits, Apple iPhone 7 is expected to have a higher 41 percent margin than Pixel’s 22-25 percent.

For a first handset, the Pixel has certainly captured the attention of the consumers. It delivers an excellent performance, offers a great camera, the best Android user experience at a premium price segment. Samsung’s failure with the Galaxy Note 7 , will definitely be a factor to take into consideration for higher sales of the Pixel.

Challenges in India – the growth market

Apple iPhone along with the Samsung Galaxy S or the Note series have been the go-to segments for buyers who want a premium device, with no compromises whatsoever on the user experience front. In markets such as the US and Europe, where you generally buy a phone with a contract, selling iPhones or Galaxy devices, hasn’t been that big a challenge for Apple or Samsung, as compared to selling them in a growing market such as India. All said and done, Apple occupies a mere 2.5 percent overall smartphone market share as compared to Samsung’s over 25 percent  share. So Google clearly has a lot to contend with, in India.

While India is a growing market, the major growth areas at the moment lie in the budget to mid-range market segments. These are areas where majority of the smartphone shopping in India happens. This also throws up new players every successive quarters in the rankings, depending on which company is offering a better value for money phone.

Google Pixel is certainly not playing in this field. Neither is Apple. Samsung is the only player that is balancing itself across all segments, and that shows in its market share numbers as well.

How Apple is doing the Premium segment right

The reason Apple devices, despite their premium pricing, manage to sell in high numbers in this segment is because of the user experience offered. An Apple iPhone user knows for a fact that he or she will be on the latest OS within months of announcement. Android users, have a lot to fight for in that area. As of November 2016, Android Nougat 7.0 is present on only 0.3 percent of total Android devices, 6.0 Marshmallow which has been over a year now constitutes 24 percent share. iOS 10 adoption rate was 20 percent in just two days!

According to this report , iOS in-app spending is almost 2.5x more than Android in-app purchases. With Google having baked in Assistant into the Pixel, expecting a higher volume of search queries leading to higher revenue from mobile search, is not an outrageous claim to make. Google can certainly get revenue via this indirect means.

With the iPhone, there’s the whole ecosystem equation – iPad, MacBook and iMac users are more likely to go for an iPhone. With Android users, it does not play that big a role. Resale value? The Apple iPhone certainly excels there as well. And this, for many, is an iPhone purchase decision. See the pattern?

What I am getting at is, that if the Pixel is playing in the premium segment, it needs to go beyond just hardware specs. At a high price segment, top end specs are a given. But it’s the overall user experience that will set a product apart, and make people shell out that extra moolah. Sure, Pixel offers features such as the Assistant which gives a much better experience with its deep learning roots. The Daydream VR platform, is another feature that Pixel is promising as a value add over competition.

User Experience is everything

To give an analogy, in the luxury car segment, buyers don’t want the best value for money. Rather a car with an aspirational value which not only gives direct gratification to the buyer, but also indirect gratification in terms of the attention it commands.

Pixel definitely is an aspirational product, but so is the Galaxy S7/S7 edge – both operating in the Android space.

But having said that, one also needs to look at how popular products such as the OnePlus 3 are doing in India. OnePlus 3 and the upcoming OnePlus 3T , are both offering specifications at par with a Pixel or a Galaxy S7, but at half the price point. User experience isn’t compromised either. From selling its flagship at Rs 21,999 in 2014 to having its flagship at Rs 27,999, and managing to sell well, points to the fact that given a great build quality, good hardware specs and good user experience, people are willing to spend more. Would I call this a premium device? Well, not it terms of pricing. But in terms of user experience, certainly.

Whether Pixel becomes a bestseller or not, is something time will tell us. The projected numbers by Morgan Stanley of 3 mn Pixel sales by end of 2016 seem like a drop in the ocean when compared to the iPhone sales. But don’t forget that Pixel is a first Google made device (technically HTC, but it’s no Nexus program) and it has certainly created a buzz in the premium segment. Sustaining that will mean offering a great user experience, in the same league as the two incumbents in the space. Going by traditional release cycle dates, a Pixel upgrade should be out in the second half of 2017, by when Samsung will already have released its Galaxy S8. Google will have to pre-empt Samsung’s offerings and at least be a step ahead in the user experience stakes.

Else, there are many players like OnePlus, ready to steal Google’s thunder.